5 Porter's forces


The analysis model of 5 Porter's forces, posted in 1979 in Harvard Business Review, is used to this day in market analysis, both to determine the attractiveness (value) This market, as for information to support strategic planning for launching a new product or service, or a repositioning in the market.

Although the business environment, today, It is more sophisticated than 30 years, When the release of the article, the basic principles of the model remain valid and allow for quick and simple analysis of competition environment, without having to be an expert in strategic planning, to do this analysis.

5 Gallows Porter

Observation: Click on image to enlarge.

According to the model of Porter, the forces that influence the business strategies are:

1 - Threat of new entrants. Namely, the threats related to the possibility and the feasibility of the entry of new competitors in the market, IE, the Barriers to entry. The prospect of analysis of this task force is to assess the possibility of third parties enter the market. For example, the need to have economies of scale to enter the market or technology or protection fees or import quotas.

2 - Suppliers. The power of bargain of suppliers. An example, would be when there are few suppliers that meet a market, which in practice allows them to have greater control over prices, can develop cartels, or even restrict the possibility of choice of suppliers and negotiating better terms of delivery, with this the bargaining power of suppliers increases.

3 - Customers. The power of bargain of customers. Here the prospect is client-side, how easy it is, for the client, change of supplier or bargain with the price and supply conditions. In the market there are many products and services serving the same market niche, I'm sure it will be easy for the customer to change supplier. Another example would be the inverse case, There are few customers who buy in this niche market, and if you lose that client, for those who will sell, If the other customers are already well served?

4 -Threat of substitute Products. The existence of substitute goods or services. The possibility of customers have their needs met by similar products or services or that the end result is the same, is a factor to consider. For example, a manufacturer of software that automates a process from a client. If this software extrapolate the price or terms of use, the customer can change the productive process control to manual, or to outsource this control so that involves, including, the computerized system.

5 - All these forces influence the behavior of the Market and the rivalry.

About the Market and the rivalry. Together with the company there are several competitors with the same type of product or service, and with same attractiveness of price, conditions, quality and even positioning, certainly, the position of the company's power in this environment will not be good. On the other hand, If you enter the market with a difference that is not accompanied by competitors, the power of this company, within this market, will be greater.

The threat of new entrants, or barriers to entry, We can mention, as an example, for analysis:

  • The economy of scale
  • Cost and time to market
  • Cost advantages
  • Technology protection
  • Identifying with brands
  • Access to technology
  • Access to distribution
  • Access to inputs
  • Government policies (rates and dimensions)
  • Need for capital
  • Learning curve on the market
  • Expected retaliation

With regard to the power of suppliers (bargain) We can refer to, to study:

  • Number (concentration) of suppliers
  • Size of suppliers
  • The vendor tag is strong
  • The ability to replace
  • Importance of the volume of purchase to the vendor
  • Cost of change of supplier

About the power of customer (bargain), as a suggestion for analysis:

  • Concentration of customers versus industry concentration (competitors)
  • Difference (differentiation) among the competitors
  • Price sensitivity (profitability/margin of customers)
  • Purchase volume of customers
  • The role of quality and service
  • The cost for the client in change of supplier
  • Client cost variation in relation to the cost variance of industry

It, about the substitute products or services:

  • Relative cost and performance of a replacement
  • Cost of switching to the substitute
  • The trend of the client to adopt a substitute

It's no use, only, make the study of all the forces of the model. For it to be effective, then, must be prepared the analysis of the strengths and weaknesses of the company versus each point, in every force.

With this analysis, the strategist will be able to position the company in order to maximize the advantages of the company, define the best defences against competitive forces and balance the general framework of forces through strategic moves, in order to position the company beneficially.

 

Reference: PORTER, M. How competitive forces shape strategy, Harvard Business Review, Mar/Apr, 1979. Available in: http://my.execpc.com/~ jpurtell/HBR-HowCompetitiveForcesShapeStrategy.pdf>. Access in: 13 ten. 2009.